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Should You Refinance or Restructure Your Debt?

Should You Refinance or Restructure Your Debt?

by programmerSeptember 8, 2015

If you are a property owner, there may come a time when you need to consider either refinancing your loan or restructuring your debt. If that time comes, how will you know which step is the right one to take?

What is Refinancing?

To refinance a loan basically means to make your existing loan anew. If you have a housing loan with one bank, to refinance the loan would be switch that loan over to a new bank; this loan will essentially become a new loan with new terms.

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The new bank will need certain information from you before they decide to give you this new loan, such as your credit rating, payment history, income, employment history and an appraisal of the current value of your property.

Reasons to Refinance a Loan

The main reason anyone would consider refinancing their loan is to get a new loan with a much lower interest rate. If your loan has a lower interest rate then your monthly instalments on the loan will also decrease significantly, lightening your debt repayment burden.

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Some might also wish to refinance their loan to shorten the term of their loan’s repayment and get it over with sooner. Of course, this is only possible if you can afford it financially. Another thing that might push you to refinance your loan is a cash payout loan refinancing.

In this case, your loan will be refinanced based on the current value of your property and if there is a significant difference between the values then and the current value, you stand to get quite a good sum of money out of your loan refinancing. Many people do this to get the money necessary to use as down payment for other big-ticket items such as a car or another property.

What is Debt Restructuring?

If you have defaulted on your loan repayments and are now considered a debt “delinquent”, you can negotiate with the institution that gave you the loan to change the terms of the loan repayment. This is to make it more manageable for you to pay off your debts.

Reasons to Restructure Debt

If you have defaulted on loan repayments to the point where the bank that gave you the loan is looking to auction off your property or to file bankruptcy charges against you, then negotiating debt-restructuring is a way to get the bank to delay taking these measures against you.


This move works only if you adhere to the new loan repayment terms that have been agreed upon.

Which Change is the Better Choice?

Refinancing a loan is more of a preventive measure, while debt-restructuring is something you do to try and salvage the situation. That said, loan refinancing may be more prudent as you can take advantage of lower interest rates and smaller monthly instalments if you feel you can’t handle the terms of your current loan.

You’ll be able to benefit financially, keep your property and still have a relatively good credit score. If you wait until debt-restructuring is necessary, your credit score will be adversely affected and you run the risk of history repeating itself if you can’t actually afford the new repayment terms that you agreed to.


Don’t wait until things are dire before trying to find a solution to your financial problems. Keep on top of your debt repayment and review your financial situation regularly to determine the right time for you to refinance your loan, if you have to. You even stand to make some money out of it too!

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